united states
Securities and Exchange Commission
Washington, D. C. 20549
FORM
(Mark One)
| | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the quarterly period ended
OR
| | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from …… to …….
Commission File Number
Cadiz Inc.
(Exact name of registrant specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" , "smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
☐ Large accelerated filer ☐ Accelerated filer ☑
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes
As of November 14, 2022, the Registrant had
| Fiscal Third Quarter 2022 Quarterly Report on Form 10-Q |
Page |
| PART I – FINANCIAL INFORMATION |
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| ITEM 1. Financial Statements |
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| Cadiz Inc. Condensed Consolidated Financial Statements |
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| Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022, and December 31, 2021 |
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| Unaudited Notes to the Condensed Consolidated Financial Statements |
7 |
| ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
| ITEM 3. Quantitative and Qualitative Disclosures about Market Risk |
25 |
| 26 |
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| PART II – OTHER INFORMATION |
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| 27 |
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| 27 |
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| ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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| Cadiz Inc. |
| Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) |
| For the Three Months |
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| Ended September 30, |
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| ($ in thousands, except per share data) |
2022 |
2021 |
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| Total revenues |
$ | $ | ||||||
| Costs and expenses: |
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| Cost of goods sold |
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| General and administrative |
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| Depreciation |
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| Total costs and expenses |
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| Operating loss |
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| Interest expense, net |
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| Loss on extinguishment of debt |
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| Loss before income taxes |
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| Income tax expense |
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| Loss from equity-method investments |
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| Net loss and comprehensive loss |
$ | ( |
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$ | ( |
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| Less: Preferred stock dividend |
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| Net loss and comprehensive loss applicable to common stock |
$ | ( |
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$ | ( |
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| Basic and diluted net loss per common share |
$ | ( |
) |
$ | ( |
) | ||
| Basic and diluted weighted average shares outstanding |
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See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) |
| For the Nine Months |
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| Ended September 30, |
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| ($ in thousands, except per share data) |
2022 |
2021 |
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| Total revenues |
$ | $ | ||||||
| Costs and expenses: |
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| Cost of goods sold |
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| General and administrative |
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| Depreciation |
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| Total costs and expenses |
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| Operating loss |
( |
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( |
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| Interest expense, net |
( |
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( |
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| Loss on extinguishment of debt |
( |
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| Loss before income taxes |
( |
) |
( |
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| Income tax expense |
( |
) |
( |
) | ||||
| Loss from equity-method investments |
( |
) |
( |
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| Net loss and comprehensive loss |
$ | ( |
) |
$ | ( |
) | ||
| Less: Preferred stock dividend |
( |
) |
( |
) | ||||
| Net loss and comprehensive loss applicable to common stock |
$ | ( |
) |
$ | ( |
) | ||
| Basic and diluted net loss per common share |
$ | ( |
) |
$ | ( |
) | ||
| Basic and diluted weighted average shares outstanding |
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See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Condensed Consolidated Balance Sheets (Unaudited) |
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant, equipment and water programs, net | ||||||||
| Long-term deposit/prepaid expenses | ||||||||
| Equity-method investments | ||||||||
| Goodwill | ||||||||
| Right-of-use asset | ||||||||
| Long-term restricted cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Dividend payable | ||||||||
| Operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | ||||||||
| Long-term lease obligations with related party, net | ||||||||
| Long-term operating lease liabilities | ||||||||
| Deferred revenue | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock - par value; shares authorized at September 30, 2022 and December 31, 2021; shares issued and outstanding – at September 30, 2022 and December 31, 2021 | ||||||||
| Series A cumulative, perpetual preferred stock - par value; shares authorized at September 30, 2022 and December 31, 2021; shares issued and outstanding – at September 30, 2022 and December 31, 2021 | ||||||||
| Common stock - par value; shares authorized at September 30, 2022 and December 31, 2021; shares issued and outstanding – at September 30, 2022 and at December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Condensed Consolidated Statements of Cash Flows (Unaudited) |
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | ( | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of debt discount and issuance costs | ||||||||
| Amortization of right-of-use asset | ||||||||
| Interest expense added to loan principal | ||||||||
| Interest expense added to lease liability | ||||||||
| Loss on equity method investments | ||||||||
| Loss on debt conversion and extinguishment of debt | - | |||||||
| Compensation charge for stock and share option awards | ||||||||
| Unrealized (gain) loss on warrant derivative liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Other accrued liabilities |
| |||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Additions to property, plant and equipment and water programs | ( | ) | ( | ) | ||||
| Contributions to equity-method investments | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of stock | ||||||||
| Net proceeds from the issuance of % series A cumulative, perpetual preferred stock | ||||||||
| Proceeds from the issuance of long-term debt | ||||||||
| Issuance costs of long-term debt | ( | ) | ||||||
| Proceeds from the exercise of warrants | ||||||||
| Dividend payments | ( | ) | ||||||
| Principal payments on long-term debt | ( | ) | ( | ) | ||||
| Costs of extinguishment of debt | ( | ) | ||||||
| Taxes paid related to net settlement of equity awards | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) |
For the three and nine months ended September 30, 2022 ($ in thousands, except share data)
| 8.875% Series A Cumulative | Additional | Total | ||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Perpetual Preferred Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to direct offerings | ||||||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock-based compensation Expense | ||||||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) |
For the three and nine months ended September 30, 2021 ($ in thousands, except share data)
| 8.875% Series A Cumulative | Additional | Total | ||||||||||||||||||||||||||||||||||
| Common Stock |
| Preferred Stock | Perpetual Preferred Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Reclassification of warrant liability | - | - | - | |||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to ATM offerings | ||||||||||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to ATM offerings | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to direct offering | ||||||||||||||||||||||||||||||||||||
| Issuance of shares pursuant to exercise of warrants | ||||||||||||||||||||||||||||||||||||
| Conversion of preferred shares to common shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of shares to lenders | ||||||||||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock units | ||||||||||||||||||||||||||||||||||||
| Net settlement for taxes related to equity awards | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Issuance of shares pursuant to ATM offerings | -- | |||||||||||||||||||||||||||||||||||
| Conversion of preferred shares to common shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of % series A cumulative perpetual preferred shares | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of warrants | - | - | - | |||||||||||||||||||||||||||||||||
| Issuance of shares to lenders | ||||||||||||||||||||||||||||||||||||
| Dividends declared on % series A cumulative perpetual preferred shares ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss and comprehensive loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| Cadiz Inc. |
| Notes to the Consolidated Financial Statements |
NOTE 1 – BASIS OF PRESENTATION
The Condensed Consolidated Financial Statements and notes have been prepared by Cadiz Inc., also referred to as “Cadiz” or “the Company”, without audit and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The foregoing Condensed Consolidated Financial Statements include the accounts of the Company and contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair statement of the Company’s financial position, the results of its operations and its cash flows for the periods presented and have been prepared in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of results for the entire fiscal year ending December 31, 2022.
Liquidity
The Condensed Consolidated Financial Statements of the Company have been prepared using accounting principles applicable to a going concern, which assumes realization of assets and settlement of liabilities in the normal course of business.
The Company incurred losses of $
Cash requirements during the nine months ended September 30, 2022 primarily reflect certain administrative costs related to the Company’s water project development efforts and the further development of its land and agricultural assets. The Company’s present activities are focused on the development of its assets in ways that meet growing long-term demand for access to sustainable water supplies and agricultural products.
On June 7, 2021, the Company completed the sale and issuance of
| Cadiz Inc. |
On June 29, 2021, the Company entered into an Underwriting Agreement with BRS as representative of the several underwriters named there, to issue and sell an aggregate of
On July 2, 2021, the Company entered into a new $
On March 23, 2022, the Company completed the sale and issuance of
On November 14, 2022, the Company completed the sale and issuance of
The Company may meet its debt and working capital requirements through a variety of means, including extension, refinancing, equity placements, the sale or other disposition of assets, or reductions in operating costs. The covenants in the Senior Secured Debt do not prohibit the Company’s use of additional equity financing and allow the Company to retain 100% of the proceeds of any common equity financing. The Company does not expect the loan covenants to materially limit its ability to finance its water and agricultural development activities.
Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from each financial statement issuance date. Management evaluates the Company’s liquidity to determine if there is a substantial doubt about the Company’s ability to continue as a going concern. In the preparation of this liquidity assessment, management applies judgement to estimate the projected cash flows of the Company including the following: (i) projected cash outflows (ii) projected cash inflows and (iii) categorization of expenditures as discretionary versus non-discretionary. The cash flow projections are based on known or planned cash requirements for operating costs as well as planned costs for project development.
| Cadiz Inc. |
Limitations on the Company’s liquidity and ability to raise capital may adversely affect it. Sufficient liquidity is critical to meet the Company’s resource development activities. Although the Company currently expects its sources of capital to be sufficient to meet its near-term liquidity needs, there can be no assurance that its liquidity requirements will continue to be satisfied. If the Company cannot raise needed funds, it might be forced to make substantial reductions in its operating or project development expenses, which could adversely affect its ability to implement its current business plan and ultimately its viability as a company.
Supplemental Cash Flow Information
During the nine months ended September 30, 2022, approximately $
At September 30, 2022, accruals for cash dividends payable on the Series A Preferred Stock was $
The balance of cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows is comprised of the following:
| Cash, Cash Equivalents and Restricted Cash | September 30, 2022 | December 31, 2021 | September 30, 2021 | |||||||||
| (in thousands) | ||||||||||||
| Cash and Cash Equivalents | $ | $ | $ | |||||||||
| Restricted Cash | ||||||||||||
| Long Term Restricted Cash | ||||||||||||
| Cash, Cash Equivalents and Restricted Cash in the Consolidated Statement of Cash Flows | $ | $ | $ | |||||||||
The restricted cash amounts primarily represent funds deposited into a segregated account, representing an amount sufficient to pre-fund quarterly dividend payments on Series A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering through approximately July 2023.
Recent Accounting Pronouncements
Accounting Guidance Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which introduces new guidance for the accounting for credit losses on certain financial instruments. This update is effective for fiscal years beginning after December 15, 2022, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing this new guidance and expects this new standard will not have a material impact on the consolidated financial statements.
| Cadiz Inc. |
NOTE 2 – LONG-TERM DEBT
On June 28, 2021, an affiliate of BRS entered into an assignment and assumption agreement (“Assignment”) whereby it agreed to purchase all outstanding obligations under the Company’s then existing senior secured debt for $77.5 million. This Assignment closed on July 2, 2021.
On July 2, 2021, the Company entered into a new $
In the event of certain asset sales, the incurrence of indebtedness or a casualty or condemnation event, in each case, under certain circumstances as described in the Credit Agreement, the Company will be required to use a portion of the proceeds to prepay amounts under the debt. In the event of any additional issuance of depositary receipts (“Depositary Receipts”) representing interests in shares of
The Credit Agreement includes customary affirmative and negative covenants, including delivery of financial statements and other reports. The negative covenants limit the ability of the Company to, among other things, incur debt, incur liens, make investments, sell assets, pay dividends and enter into transactions with affiliates. In addition, the Credit Agreement includes customary events of default and remedies.
While any amount remains outstanding under the debt, the Lenders will have the right to convert the outstanding principal, plus unpaid interest, on the debt into Depositary Receipts at the per share exchange price of $
| ● | at any time after the 12-month anniversary of the closing of the debt, and on or before the 18-month anniversary of the closing of the debt, up to |
| Cadiz Inc. |
|
| ● | at any time after the 18-month anniversary of the closing of the debt, and on or before the 24-month anniversary of the closing of the debt, up to |
| ● | at any time after the 24-month anniversary of the closing of the debt, up to |
The proceeds of the Senior Secured Debt were used, together with the proceeds received from the Depositary Share Offering, (a) to repay all of the Company’s outstanding obligations under the then existing senior secured debt, (b) to deposit approximately $
In connection with the issuance of the Senior Secured Debt, on July 2, 2021 (the “Original Issue Date”) the Company issued to the Lenders
As a result of the issuance of the Warrants, which met the criteria for equity classification under applicable GAAP, the Company recorded additional paid-in capital in the amount of $
NOTE 3 – STOCK-BASED COMPENSATION PLANS
The Company has issued options and has granted stock awards pursuant to its 2019 Equity Incentive Plan, as described below.
2019 Equity Incentive Plan
The 2019 Equity Incentive Plan (as amended, the “2019 EIP”), was originally approved by stockholders at the July 10, 2019 Annual Meeting, with an amendment to the plan approved by stockholders at the July 12, 2022 Annual Meeting. The plan, as amended, provides for the grant and issuance of up to
| Cadiz Inc. |
Effective July 1, 2021, under the 2019 EIP, each outside director receives $
Stock Awards to Directors, Officers, and Consultants
The Company has granted stock awards pursuant to its 2019 EIP.
Of the total
Of the
Upon the change of the Executive Chair on February 4, 2022, a total of
Additionally, the Company issued
|
Cadiz Inc.
|
The accompanying consolidated statements of operations and comprehensive loss include stock-based compensation expense of approximately $
NOTE 4 – INCOME TAXES
As of September 30, 2022, the Company had net operating loss (“NOL”) carryforwards of approximately $
As of September 30, 2022, the Company had unrecognized tax benefits totaling approximately $
The Company's tax years 2019 through 2021 remain subject to examination by the Internal Revenue Service, and tax years through 2021 remain subject to examination by California tax jurisdictions. In addition, the Company's loss carryforward amounts are generally subject to examination and adjustment for a period of years for federal tax purposes and years for California purposes, beginning when such carryovers are utilized to reduce taxes in a future tax year.
Because it is more likely than not that the Company will not realize its net deferred tax assets, it has recorded a full valuation allowance against these assets. Accordingly, deferred tax asset has been reflected in the accompanying condensed consolidated balance sheet.
NOTE 5 – NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the net loss by the weighted-average common shares outstanding. Options, deferred stock units, convertible debt, convertible preferred shares and warrants were not considered in the computation of net loss per share because their inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would have increased by approximately
| Cadiz Inc. |
NOTE 6 – LEASES & PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS
The Company has operating leases for its corporate offices and office equipment. The Company’s leases have remaining lease terms of
From a lessor standpoint, in February 2016, the Company entered into a lease agreement with Fenner Valley Farms LLC (“FVF”) (the “lessee”), pursuant to which FVF is leasing, for a
During the nine months ended September 30, 2022, $
Depreciation expense on land improvements, buildings, leasehold improvements, machinery and equipment and furniture and fixtures was $
NOTE 7 – COMMON AND PREFERRED STOCK
Common Stock
The Company is authorized to issue
In January 2013, the Company revised its then existing agreement with the law firm of Brownstein Hyatt Farber Schreck LLP (“Brownstein”), a related party. Under this agreement, the Company is to issue up to a total of
| ■ | |
| Cadiz Inc. |
| ■ | |
All shares earned upon achievement of any of the remaining milestones will be payable years from the date earned.
Additionally, the Company incurred direct expenses to Brownstein of approximately $
Series 1 Preferred Stock
The Company has issued a total of
Series A Preferred Stock
On June 29, 2021, the Company entered into an Underwriting Agreement with BRS as representative of the several underwriters named there, to issue and sell an aggregate of
On July 1, 2021, the Company filed the Certificate of Designation (“Certificate of Designation”) for the Series A Preferred Stock with the Secretary of State of the State of Delaware, which became effective upon acceptance for record. The Certificate of Designation classified a total of
As set forth in the Certificate of Designation, the Series A Preferred Stock will rank, as to dividend rights and rights upon the Company’s liquidation, dissolution or winding up: (i) senior to Common Stock of the Company; (ii) junior to the Series 1 Preferred Stock with respect to the distribution of assets upon the Company’s voluntary or involuntary liquidation, dissolution or winding up; (iii) senior to the Series 1 Preferred Stock with respect to the payment of dividends and (iv) effectively junior to all the Company’s existing and future indebtedness (including indebtedness convertible into Common Stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) the Company’s existing or future subsidiaries.
| Cadiz Inc. |
Holders of Series A Preferred Stock, when and as authorized by the Company’s Board of Directors, are entitled to cumulative cash dividends at the rate of
At the issuance of the Series A Preferred Stock, the Company pre-funded eight quarterly payments through July 2023 in a segregated account which appears as Restricted Cash on the Balance Sheet. Dividends on the Series A Preferred Stock underlying the depositary shares will continue to accumulate whether or not (i) any of our agreements prohibit the current payment of dividends, (ii) we have earnings or funds legally available to pay the dividends, or (iii) our Board of Directors does not declare the payment of the dividends.
Holders of depositary shares representing interests in the Series A Preferred Stock generally will have no voting rights. However, if we do not pay dividends on any outstanding shares of Series A Preferred Stock for six or more quarterly dividend periods (whether or not declared or consecutive), holders of the Series A Preferred Stock (voting separately as a class with all other outstanding series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to elect two additional directors to the Board of Directors to serve until all unpaid dividends have been fully paid or declared and set apart for payment.
On and after July 2, 2026, the shares of Series A Preferred Stock will be redeemable at the Company’s option, in whole or in part, at a redemption price equal to $
Shares of Series A Preferred Stock are convertible into shares of Common Stock if, and only if, a change of control or delisting event (each as defined in the Certificate of Designation) has occurred, and the Company has not elected to redeem the Series A Preferred Stock prior to the applicable conversion date. Upon any conversion, each share of Series A Preferred Stock will be converted into that number of shares of Common Stock equal to the lesser of (i) the quotient obtained by dividing (A) the sum of (x) the $
The Company has
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Cadiz Inc.
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NOTE 8 – COMMITMENTS AND CONTINGENCIES
In the normal course of its agricultural operations, the Company handles, stores, transports and dispenses products identified as hazardous materials. Regulatory agencies periodically conduct inspections and, currently, there are no pending claims with respect to hazardous materials.
Pursuant to cost-sharing agreements that have been entered into by participants in the Company’s Water Project, $
The Company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business. At this time, the Company is not aware of any pending or threatened litigation that it expects will have a material adverse effect on its business, financial condition, liquidity, or operating results. Legal claims are inherently uncertain, however, and it is possible that the Company’s business, financial condition, liquidity and/or operating results could be adversely affected in the future by legal proceedings.
NOTE 9 – SUBSEQUENT EVENTS
In November 2022, the Company completed an asset acquisition from ATEC Systems (“ATEC”), a privately held water filtration technology company at a price of up to $
On November 14, 2022, the Company completed the sale and issuance of
| Cadiz Inc. |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following discussion contains trend analysis and other forward-looking statements. Forward-looking statements can be identified by the use of words such as “intends”, “anticipates”, “believes”, “estimates”, “projects”, “forecasts”, “expects”, “plans” and “proposes”. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. These include, among others, our ability to maximize value from our land and water resources and our ability to obtain new financings as needed to meet our ongoing working capital needs. See additional discussion under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. Our forward-looking statements are made only as of the date hereof. We assume no duty to update these forward-looking statements to reflect new, changed or unanticipated events or circumstances, other than as may be required by law.
We are a water solutions company and agribusiness committed to sustainable water and farming projects in California. We are one of the largest private landowners in the state and control significant water supply, storage and conveyance assets capable of being part of the solution to California’s systemic water challenges.
We own approximately 45,000 acres of land with high-quality, naturally-recharging groundwater resources in three areas of Southern California’s Mojave Desert – the Cadiz Valley (35,000 acres), Danby Dry Lake (2,000 acres), and the Piute Valley (9,000 acres) (“Cadiz Property”). Our properties represent a unique private reserve of lands with vested water rights located in a remote area of eastern San Bernardino County that is at the crossroads of major highway, rail, energy, and water infrastructure capable of supplying and delivering necessary resources to communities in California and across the Western United States.
California and the Western United States face a persistent challenge in meeting the water needs of all of its residents. While the State of California has recognized a Human Right to Water, competing municipal, agricultural and environmental demands outpace the State’s available supply limiting the ability to deliver on that promise. Recent analysis from the California State Water Resources Control Board estimates that approximately 1 million Californians lack reliable access to water and several communities are short of long-term safe, reliable and affordable drinking water supplies.
We are principally focused on developing the Cadiz Valley Water Conservation and Storage Project (“Water Project”) at our Cadiz Valley property that can help address California’s persistent systemic water challenges and deliver new water access to California communities that presently lack reliable water supplies and infrastructure. Through management of groundwater at the Cadiz Property, the Water Project would conserve groundwater otherwise used for agriculture or lost to evaporation to augment supply available in California communities and also make available capacity in the managed groundwater aquifer system at Cadiz to bank and store imported water for future dry years.
| Cadiz Inc. |
The Water Project has completed extensive environmental review in accordance with local, state and federal law and has secured permits to manage the groundwater aquifer in Cadiz to make available an average of 50,000 acre-feet of water per year for 50 years to communities off of the Cadiz Property. Permitting has also authorized the storage of imported water in the aquifer system for return in dry years. The Cadiz aquifer system has the capacity to store one million acre-feet of imported water.
To deliver water to and from the Cadiz Property for participating water providers, the Water Project must provide conveyance facilities capable of connecting Cadiz and areas in need. We own a retired, 30” steel pipeline (“Northern Pipeline”) previously used to convey oil that extends 220-miles from California’s Central Valley near the California Aqueduct southeast across Kern and San Bernardino Counties terminating in Cadiz. This pipeline crosses the Los Angeles Aqueduct and facilities of the State Water Project. Engineering and technical assessments indicate that the Northern Pipeline can safely convey 25,000 acre-feet of water in either direction. We also maintain a 99-year lease with the Arizona & California Railroad Company (“ARZC”) to co-locate and construct a 43-mile, approximately 55-85” steel water conveyance pipeline (“Southern Pipeline”) within the existing, active railroad right-of-way that intersects the Colorado River Aqueduct (“CRA”), one of Southern California’s primary sources of drinking water in Southern California. The Southern Pipeline would have a maximum capacity to convey up to 150,000 acre-feet per year in either direction.
To utilize the Northern Pipeline for water conveyance related to the Water Project or to construct and operate the Southern Pipeline in coordination with existing water conveyance facilities, we must complete additional permitting and regulatory processes.
We expect to complete any necessary permitting in coordination with any contract by a third party to use the facilities.
We believe that the ultimate implementation of the Water Project will provide a significant source of future cash flow for the business and our stockholders. We presently rely upon debt and equity financing to support our working capital needs and development of the Water Project (see “Liquidity and Capital Resources”, below).
Our agricultural operations currently provide the Company’s principal source of revenue, although our working capital needs are not fully supported by our agricultural lease and farming returns at this time.
In November 2022, the Company completed an asset acquisition from ATEC Systems (“ATEC”), a privately held water filtration technology company. The acquisition from ATEC will enable us to assist water agencies in increasing supplies of potable water from contaminated groundwater sources. Increasing supplies of treated groundwater in California will expand water supplies available for exchange and transfer utilizing our storage and conveyance facilities when the Water Project is operational.
Our current and future operations also include activities that further our commitments to sustainable stewardship of our land and water resources, good governance and corporate social responsibility. We believe these commitments are important investments that will assist in maintenance of sustained stockholder value.
| Cadiz Inc. |
Results of Operations
Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021
We have not received significant revenues from our water resource and real estate development activity to date. Our revenues have been limited to rental income from our agricultural leases and from sales from our alfalfa plantings beginning in 2022. As a result, we have historically incurred a net loss from operations. We incurred a net loss of $6.5 million in the three months ended September 30, 2022, compared to a $7.8 million net loss during the three months ended September 30, 2021. The higher 2021 loss was primarily due to stock-based non-cash bonus awards to employees and higher interest expense in that period.
Our primary expenses are our ongoing overhead costs associated with the development of the Water Project (i.e., general and administrative expense) and our interest expense. We will continue to incur non-cash expenses in connection with our management and director equity incentive compensation plans.
Revenues Revenue totaled $599 thousand during the three months ended September 30, 2022, compared to $142 thousand for the three months ended September 30, 2021. Revenue primarily related to rental income from our agricultural leases and our alfalfa crop harvest.
Cost of Sales Cost of sales totaled $1.2 million during the three months ended September 30, 2022, compared to $0 for the three months ended September 30, 2021. In June 2022, the Company converted 610 acres of agricultural development to alfalfa commercial production. The 2022 loss was primarily due to non-recurring start-up costs for the initial short year of commercial production.
General and Administrative Expenses General and Administrative Expenses, exclusive of stock-based compensation costs, totaled $3.2 million in the three months ended September 30, 2022, compared to $3.5 million in the three months ended September 30, 2021.
Compensation costs for stock and option awards for the three months ended September 30, 2022, were $492 thousand, compared to $696 thousand for the three months ended September 30, 2021. The higher 2021 expense was primarily due to stock-based non-cash bonus awards to employees.
Depreciation Depreciation expense totaled $180 thousand during the three months ended September 30, 2022, compared to $107 thousand during the three months ended September 30, 2021. The higher 2022 depreciation expense is primarily due to construction in progress placed into service in June 2022, which included stand establishment and land improvements related to the planting of 610 acres of alfalfa.
Interest Expense, net Net interest expense totaled $2.1 million during the three months ended September 30, 2022 compared to $2.0 million during the same period in 2021. The following table summarizes the components of net interest expense for the two periods (in thousands):
| Cadiz Inc. |
| Three Months Ended |
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| September 30, |
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| 2022 |
2021 |
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| Interest on outstanding debt |
$ | 1,480 | $ | 1,461 | ||||
| Amortization of debt discount |
617 | 535 | ||||||
| Amortization of deferred loan costs |
- | 4 | ||||||
| $ | 2,097 | $ | 2,000 | |||||
Loss from Equity-Method Investments Loss from equity-method investments related to our 50% ownership in the SoCal Hemp JV LLC (“Joint Venture”) totaled $2 thousand for the three months ended September 30, 2022, compared to $271 thousand for the three months ended September 30, 2021. No plantings of hemp were made by the Joint Venture during 2022 due to market conditions.
Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021
We incurred a net loss of $17.9 million in the nine months ended September 30, 2022, compared to a $25.3 million net loss during the nine months ended September 30, 2021. The higher 2021 loss was primarily due to stock-based non-cash bonus awards to employees and higher interest expense in that period.
Revenues Revenue totaled $927 thousand during the nine months ended September 30, 2022, compared to $422 thousand for the nine months ended September 30, 2021. Revenues primarily related to rental income from our agricultural leases and our alfalfa crop harvest.
Cost of Sales Cost of sales totaled $1.2 million during the nine months ended September 30, 2022, compared to $0 for the nine months ended September 30, 2021. In June 2022, the Company converted 610 acres of agricultural development to alfalfa commercial production. The 2022 loss was primarily due to non-recurring start-up costs for the initial short year of commercial production.
General and Administrative Expenses General and Administrative Expenses, exclusive of stock-based compensation costs, totaled $9.6 million in the nine months ended September 30, 2022, compared to $9.7 million in the nine months ended September 30, 2021.
Compensation costs for stock and option awards for the nine months ended September 30, 2022, were $1.3 million, compared to $4.1 million for the nine months ended September 30, 2021. The higher 2021 expense was primarily due to stock-based non-cash bonus awards to employees.
Depreciation Depreciation expense totaled $473 thousand during the nine months ended September 30, 2022, compared to $313 thousand during the nine months ended September 30, 2021. The higher 2022 depreciation expense is primarily due to construction in progress placed into service in June 2022, which included land development and stand establishment related to the planting of 760 acres of alfalfa.
| Cadiz Inc. |
Interest Expense, net Net interest expense totaled $6.1 million during the nine months ended September 30, 2022 compared to $9.4 million during the same period in 2021. The following table summarizes the components of net interest expense for the two periods (in thousands):
| Nine Months Ended |
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| September 30, |
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| 2022 |
2021 |
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| Interest on outstanding debt |
$ | 4,367 | $ | 7,062 | ||||
| Unrealized (gains) losses on warrants, net |
- | (573 | ) |
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| Amortization of debt discount |
1,777 | 547 | ||||||
| Amortization of deferred loan costs |
- | 2,364 | ||||||
| $ | 6,144 | $ | 9,400 | |||||
Loss from Equity-Method Investments Loss from equity-method investments related to our 50% ownership in the SoCal Hemp JV LLC ("Joint Venture”) totaled $171 thousand for the nine months ended September 30, 2022, compared to $840 thousand for the nine months ended September 30, 2021. No plantings of hemp were made by the Joint Venture during 2022 due to market conditions.
Liquidity and Capital Resources
Current Financing Arrangements
As we have not received significant revenues from our development activities to date, we have been required to obtain financing to bridge the gap between the time water resource and other development expenses are incurred and the time that revenue will commence. Historically, we have addressed these needs primarily through secured debt financing arrangements and private equity placements.
On June 7, 2021, we completed the sale and issuance of 1,219,512 shares of the Company’s common stock to certain institutional investors under a placement agent agreement with B. Riley Securities, Inc. (“BRS”). The shares of common stock were sold at a purchase price of $12.30 per share, for aggregate gross proceeds of $15 million and aggregate net proceeds of approximately $14.1 million. We used the net proceeds from this offering, together with cash on hand, to fund the $19 million payment made on June 30, 2021 to complete the acquisition of a 124-mile extension of the Northern Pipeline.
On June 29, 2021, we entered into an Underwriting Agreement with BRS as representative of the several underwriters named therein, to issue and sell an aggregate of 2,000,000 depositary shares (the “Depositary Shares”), as well as up to 300,000 Depositary Shares that may be sold pursuant to the exercise of an option to purchase additional Depositary Shares, each representing 1/1000th of a share of Series A Preferred Stock (“Depositary Share Offering”). The liquidation preference of each of each share of Series A Preferred Stock is $25,000 ($25.00 per Depositary Share). The Depositary Share Offering was completed on July 2, 2021 for net proceeds of approximately $54 million.
| Cadiz Inc. |
On March 23, 2022, we completed the sale and issuance of 6,857,140 shares of the Company’s common stock to certain institutional and individual investors in a registered direct offering. The shares of common stock were sold at a purchase price of $1.75 per share, for aggregate gross proceeds of $12 million and aggregate net proceeds of approximately $11.7 million. The proceeds are being used for working capital needs and for general corporate purposes.
On November 14, 2022, the Company completed the sale and issuance of 5,000,000 shares of the Company’s common stock to certain institutional investors in a registered direct offering. The shares of common stock were sold at a purchase price of $2.00 per share, for aggregate gross proceeds of $10 million and aggregate net proceeds of approximately $9.85 million. The Company plans to use the net cash proceeds for capital expenditures to accelerate development of the Water Project, working capital and development of additional water resources to meet increased demand on an accelerated timetable.
Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities. To the extent additional capital is required, we may increase liquidity through a variety of means, including equity or debt placements, through the lease, sale or other disposition of assets or reductions in operating costs. If additional capital is required, no assurances can be given as to the availability and terms of any new financing.
As we continue to actively pursue our business strategy, additional financing will continue to be required. See “Outlook” below. The covenants in the Senior Secured Debt do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds of any equity financing. We do not expect the loan covenants to materially limit our ability to finance our water and agricultural development activities.
Cash Used in Operating Activities. Cash used in operating activities totaled $13.4 million and $9.6 million for the nine months ended September 30, 2022 and 2021, respectively. The cash used in the 2022 period was primarily used to fund: (i) general and administration expenses related to our water development efforts, (ii) legal expenses and (iii) commercial production of our alfalfa crops.
Cash Used in Investing Activities. Cash used in investing activities totaled $2.5 million for the nine months ended September 30, 2022, and $21.5 million for the nine months ended September 30, 2021. The cash used in the 2022 period primarily related to development costs for the initial planting of 760 acres of alfalfa. The 2021 period included additions to well development and water quality and structural testing of a five-mile segment of pipeline.
| Cadiz Inc. |
Cash Provided by Financing Activities. Cash provided by financing activities totaled $8.1 million for the nine months ended September 30, 2022, compared with cash provided of $52.7 million for the nine months ended September 30, 2021. Proceeds from financing activities for both periods reported are primarily related to the issuance of shares under direct and at-the-market offerings.
Outlook
Short-Term Outlook. The registered direct offerings of common stock in March 2022 and November 2022 provided net cash proceeds of approximately $21.5 million. These net cash proceeds, together with cash on hand, provide us with sufficient funds to meet our short-term working capital needs.
Long-Term Outlook. In the longer term, we will need to raise additional capital to finance working capital needs and capital expenditures (see “Current Financing Arrangements”, above). Our future working capital needs will depend upon the specific measures we pursue in the entitlement and development of our water resources and other developments. Future capital expenditures will depend on the progress of the Water Project and further expansion of our agricultural assets.
We are evaluating the amount of cash needed, and the manner in which such cash will be raised, on an ongoing basis. We may meet any future cash requirements through a variety of means, including equity or debt placements, or through the sale or other disposition of assets. Equity placements will be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon our existing stockholders. No assurances can be given, however, as to the availability or terms of any new financing. Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities.
Recent Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements – “Basis of Presentation”.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Reg. 240.12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.
| Cadiz Inc. |
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
The Company established disclosure controls and procedures to ensure that material information related to the Company, including its consolidated entities, is accumulated and communicated to senior management, including the Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”) and to its Board of Directors. Based on their evaluation as of September 30, 2022, the Company's Principal Executive Officer and Principal Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and such information is accumulated and communicated to management, including the principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no change identified in the Company's internal controls over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.
| Cadiz Inc. |
PART II - OTHER INFORMATION
As reported in our Annual Report on Form 10-K for the year ended December 31, 2021, in March 2021, two lawsuits were filed by The Native American Land Conservancy/National Parks Conservation Association and Center for Biological Diversity/Defenders of Wildlife/Sierra Club against the United States Department of the Interior (“DOI”), Bureau of Land Management (“BLM”) and agency decision makers in United States District Court for the Central District of California (the “Court”) related to two right-of-way permits granted in December 2020 to our subsidiary CRE LLC that enabled the transportation of water through the Northern Pipeline over BLM-managed lands (approx. 58 miles of the 220-mile pipeline that we own). The lawsuits alleged violations by BLM of various regulations in its issuance of the rights-of-way in 2020 and sought additional environmental review and tribal consultation. In August 2021, the Company was recognized by the Court as an Intervening Defendant in the lawsuits.
As further reported in our Form 8-K dated September 14, 2022, the Court issued a final ruling in these matters granting Interior’s motion for voluntary remand, which vacated the rights-of-way and returned them to the BLM. The Company will reapply for the rights-of-way and work with the BLM on any additional environmental review required to authorize the conveyance of water in the Northern Pipeline over BLM lands. The cases are now closed.
There have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
| Cadiz Inc. |
Not applicable.
| Cadiz Inc. |
The following exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.
* Filed concurrently herewith.
| Cadiz Inc. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Cadiz Inc. | ||||
| By: | /s/ Scott S. Slater | November 14, 2022 | ||
| Scott S. Slater | Date | |||
| Chief Executive Officer and President | ||||
| (Principal Executive Officer) | ||||
| By: | /s/ Stanley E. Speer | November 14, 2022 | ||
| Stanley E. Speer | Date | |||
| Chief Financial Officer and Secretary | ||||
| (Principal Financial Officer) | ||||